Issued
2006
Decision
15 Dec 2006
Appeal Status
Not appealed

Commissioner directed to consider remission of penalties and interest

2006 case note - taxpayer obtained directions against the CIR regarding aspects of their tax affairs - arrangement, penalties and interest, remission.

Case
Chesterfields Pre-Schools Limited and Other v The Commissioner of Inland Revenue
Legal terms
Arrangement, penalties and interest, remission

Summary

The taxpayer obtained directions against the Commissioner regarding aspects of their tax affairs

Facts

This was a judicial review started by five entities associated with David Hampton.

The facts of the case are complex. As the judgment recognises "For the most part the current indebtedness of the taxpayers in these proceeding reflects an automatic consequence of returns not being made on time and tax paid on due date" [par 31]

In 1993 the Chesterfields Partnership overclaimed a GST input and was obliged to repay $33,333.34 to the Commissioner. This was not done, although the taxpayer expected to offset another input tax credit to make the payment. This other input tax credit did not become available due to an audit into the claimed input.

Several years of investigation into other input tax credits in other entities (usually arising from transactions within the Hampton entities) meant that planned offsets never occurred. Mr Hampton's entities have relied upon tax refunds to pay indebtedness and have not actually paid tax [par 148]. Other revenue periods for other entities fell into arrears as the inter-entity transactions "moved" debt between entities.

Various arrangements were entered into but many issues were left unresolved between the parties. The situation was aggravated by inaction by the department in failing to complete various audits and investigations while, at the same time, awaiting the outcome of those audits and investigations to determine the availability of possible tax credits which may or may not be available to pay tax due.

In addition, one entity, Anolbe Enterprises Limited was struck off the Companies Register in 1996 and not restored until 2000. The company's GST registration was ceased in 1996 and in 2000 an informal application for re-registration (together with a request for $92,222.22 of input tax refunds) was made, but it was not until 2004 that a formal re-registration was sought. The Commissioner declined to backdate the re-registration.

Finally, the Hampton entities sought remission under section182A of the Tax Administration Act 1994 ("TAA") which was declined in June 2004. Those entities sought judicial review of this decision.

Decision

The Judge noted the departmental scepticism in dealing with Mr Hampton and also noted that Mr Hampton is "an extremely difficult ‘taxpayer' to deal with". [par 132 and 144].

He concluded, after reviewing circumstances of the section 182A remission decision, that the decision contained no reviewable error of law. He came to no concluded view regarding the various arrangements entered into.

Regarding the accumulation of penalties and interest his honour considered that:

"In my view, the correct perspective for (sic) the Commissioner should take in this case is that parliament has provided for late payment penalties as incentives on taxpayers to pay core tax liability…. The Commissioner needs to appreciate that rightly or wrongly for long periods of time, particularly between 1993 to 1998, the various officers were treating the debts as uncollectable because of the pending audit assessments of GST inputs. The Audit department did not make its decisions promptly and in some, if not most cases, did not make decisions at all in respect of the disputed GST refunds. Mr Hampton was given comfort in that respect, and became naively confident his claims would prevail, and the mounting penalties would be remitted." [par 149]

The Court concluded that "the various neglects or failures [of the Commissioner] cumulatively justify intervention by this Court by way of judicial review directing the Commissioner to complete processing input claims, and to consider associated reduction of penalties and interest payments." [par156]

The Court considered the delay in processing Anolbe's reregistration was aggravated by the Commissioner's failure to advise Anolbe of the need to make a formal application for GST registration. It is in terms of this that the relief is granted to the plaintiffs. [par 159]

The Commissioner is directed to reconsider Anolbe's re-registration and the Anolbe returns, together with any other unresolved claims by the other entities. Any resultant refunds are to be applied to the best advantage of the plaintiffs. He is to make a decision under section 182 TAA (as applicable before 23 September 1997) regarding remission of penalties—this will probably need to go to the Minister of Inland Revenue. He is to consider further remission under section 182A for penalties accruing over the periods of the hearing.

Judicature Act 1908